Johannesburg - The economy might be on the cusp of a turnaround, according to senior independent economist Azar Jammine.
However, Econometrix chief economist Jammine stressed that he was not talking about an economic boom, but that the economy had possibly been through the worst and might start improving.
“The big proviso is that the local political scene does not degenerate and forces ratings agencies to downgrade our credit rating from investment grade to junk status where governments, parastatals and other borrowers find it very difficult and expensive to borrow money,” Jammine said at the launch of Automechanika Johannesburg 2017.
Jammine said the growth in both manufacturing and mining production had picked up nicely in the past few months, which meant the second quarter gross domestic product (GDP) growth figures to be released this week would show a nice recovery from the “horrible” minus 1.2 percent growth recorded in the first quarter.
Economic growth
He said the depressed growth in the first quarter was to a large extent influenced by the configuration of public holidays in March that enabled many workers in the productive sectors to take three days of working leave to have a 10-day holiday.
In addition, Jammine said that according to the experts, the drought was over and the country no longer had an electricity supply constraint and there was therefore no more load shedding to hold back economic growth.
Jammine said despite the value of the rand being low, inflation was lower than anticipated after earlier fears that it would rocket to more than 8 percent.
The combination of a low currency and low inflation provided exporters with a wonderful window of opportunity to make inroads into global export markets, while low inflation also meant interest rates were unlikely to rise as much as previously anticipated, Jammine said.
The fear that a Brexit vote would lead to a slowdown in the world economy had resulted in expectations of interest rates around the world remaining lower for longer and money ironically flowing back into emerging markets, such as South Africa, reducing inflationary pressure further.
Jammine said a number of coalition local governments had been established following the local government elections on the basis of a united front against corruption and state capture.
He referred to comments by Finance Minister Pravin Gordhan that if just a quarter of state capture was eliminated, it would result in a R40 billion saving in government expenditure.
“That is 1 percent of GDP. In other words, the growth rate on its own could lift by 1 percent if only a quarter of this state capture was eliminated.
“I’m encouraged by this amazing mood in the country that we have to fight corruption and state capture. It could be the beginning of major progress in this regard,” Jammine said.
He said there were obviously also concerns about the country, including the potential serious negative impact on public debt levels of the leading bond investor in South Africa deciding to no longer lend money to state-owned enterprises and leading to a possible ratings downgrade of South Africa’s credit rating.
“But it’s a scenario I’m confident won’t materialise. I tried to quantify it this (last) week and concluded there was a 15 percent chance that such an outcome may occur,” he said.
Jammine estimated that about half of the decline in South Africa’s economic growth rate had been due to lower global economic growth.
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